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Research into solo 401k with intent for mega backdoor roth

Home Retirement Accounts Research into solo 401k with intent for mega backdoor roth

  • Avatar CFEonline 
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    Status: Physician
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    Joined: 09/05/2018
    From my research I don’t believe you can have the blessing of the IRS with the etrade option.  I am willing to pay for that comfort with either discountsolo401 or mysolo401k https://www.bogleheads.org/forum/viewtopic.php?t=252951

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    As I understand it, those services and others like them only write, maintain, and help you implement a custom plan document, but you still a broker to have the account where you will implement that custom plan. So of the brokers that are supposedly supported by these companies that will write and maintain the custom plan document, I like the no fee funds offered at e-trade the best, but I have only heard of people successfully implementing this at Fidelity.

    #209251 Reply
    Avatar CFEonline 
    Participant
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    Assume you mean success as in getting this set up with only a modification of Etrade’s free solo 401k offering? If so, no I’ve never heard of anyone actually getting this done. You could certainly use a semi custom plan document from one of the providers already mentioned, and have the trust accounts at Etrade.

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    No, I actually mean using the providers to setup a custom plan document. I read about people trying this at E-trade that ran into several barriers and ultimately ended up switching to Fidelity.

    #209252 Reply
    Avatar jacoavlu 
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    Joined: 03/01/2018
    Assume you mean success as in getting this set up with only a modification of Etrade’s free solo 401k offering? If so, no I’ve never heard of anyone actually getting this done. You could certainly use a semi custom plan document from one of the providers already mentioned, and have the trust accounts at Etrade. 

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    No, I actually mean using the providers to setup a custom plan document. I read about people trying this at E-trade that ran into several barriers and ultimately ended up switching to Fidelity.

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    Not sure why it would be a problem. Mysolo401k financial prefers Fidelity but said Schwab and Etrade were also doable.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #209261 Reply
    Avatar CFEonline 
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    Not sure why it would be a problem. Mysolo401k financial prefers Fidelity but said Schwab and Etrade were also doable.

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    Found one of the posts I was thinking of (https://www.bogleheads.org/forum/viewtopic.php?t=266714) ~7th post, they were using one of these providers to implement custom plan documents but were unsuccessful.

    Re: Alternative to mega backdoor roth with etrade solo 401k

    Unread post by worthit » Mon Dec 17, 2018 7:24 pm

    Current ETrade customer here. I am not familiar with the mechanics you are talking about. But just make sure the folks you are talking to at ETrade are familiar with this. I echo sarabayo’s caution and suggest getting some expert help.

    I just dropped of the applications at the local Fidelity branch today to open a non prototype investment only account to execute a mega backdoor Roth. This after Etrade sat on my applications and kept telling me for 3 weeks that they would be able to open these accounts for me and finally informing that they cannot honor my request. For some background, I requested 2 sub accounts (for after tax and Roth 401k) along with the pre-tax account based on my restated 401k plan generated by discountsolo401k. They are able to open only one account (pooled) which means that I would have to track all the contributions, withdrawals/distributions etc. meticulously which I didn’t want to. I rather have these separate so it makes things a lot easier for me.

    This I know is not the response you are looking for, but wanted to share my thoughts and perhaps make you aware of what Etrade can and cannot do. They seem to have very limited experience with these kinds of strategies as supposed to Fidelity. On the other hand, my wife’s applications with Fidelity took just 3 days (they knew exactly what this was about) which prompted me to follow suit.

    Good luck.

     

    I am just curious if anyone has confirmed success at E-trade. I may just be a bit cynical but after speaking with several of the providers including those listed it seemed like they only were willing to endorse E-trade as an option because they thought that might get my business. I could be off base though.

    #209269 Reply
    Avatar GasFIRE 
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    Status: Physician
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    This thread explains the lack of success:

    eTrade Solo 401k with Mega Back Door Roth Provisions Set Up

    You can have a plan that allows for the BD MegaRoth, but you can’t use the boilerplate individual plans provided by Fidelity, Schwab, Etrade, TDA etc. You’ll need custom plan documents that specifically allow for after-tax non-Roth contributions into your 401k. I think the confusion comes from Etrade allowing in-plan rollovers,  but that’s for pre-tax to Roth within the plan, not for after-tax to Roth.

    #209276 Reply
    Avatar jacoavlu 
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    For what it’s worth I sent a message off to my contact at Etrade to see what they say about this. I’ll report back. I can also reach out to the provider I used for my plan document and see if they have clients who’ve actually used Etrade and had success.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #209294 Reply
    Avatar CFEonline 
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    Status: Physician
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    Joined: 09/05/2018
    For what it’s worth I sent a message off to my contact at Etrade to see what they say about this. I’ll report back. I can also reach out to the provider I used for my plan document and see if they have clients who’ve actually used Etrade and had success.

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    Great! I will be curious what they have to say. It is not a deal breaker if I had to use Fidelity, I just found their customer service a hassle recently and wish they had access to Vanguard’s REIT, Small Value Fund, etc.

     

    You can have a plan that allows for the BD MegaRoth, but you can’t use the boilerplate individual plans provided by Fidelity, Schwab, Etrade, TDA etc. You’ll need custom plan documents

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    I have noticed a lot of confusion around that because the Etrade boilerplate nearly covers all the necessary steps but ultimately falls short, but I’m actually referring to using the custom plan documents and how successful or unsuccessful people have been implementing them at specific brokers.

    #209318 Reply
    Avatar GasFIRE 
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    Status: Physician
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    Joined: 01/08/2018

    I have noticed a lot of confusion around that because the Etrade boilerplate nearly covers all the necessary steps but ultimately falls short, but I’m actually referring to using the custom plan documents and how successful or unsuccessful people have been implementing them at specific brokers.

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    My apologies, I didn’t read your earlier post closely enough saying you were bringing your own custom plan documents. I guess at this point it’s more about being able to actually execute the plan. @jacoavlu ‘s advisor preferred Fidelity but was OK with Schwab or Etrade. My TPA preferred Etrade or TDA and I got pushback when I wanted my Roth account at Fidelity (where my pre-tax non-prototype account already resided). I picked TDA because they have an office in the same complex as my Fidelity branch and the account was active in less than a week. It makes you wonder where these preferences come from. This is just a WAG but if your earlier boglehead post is true that Etrade only allowed a pooled account and not separate sub-accounts, that could be a deal-breaker for DIYers. My TPA really didn’t care if I used a pooled or separate accounts, she told me their firm handles all the accounting and reporting either way. I wanted the separate accounts so I could distinguish between pre-tax and Roth. Good luck on being able to find a plan that works for you.

    #209343 Reply
    Avatar jacoavlu 
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    Big difference if you actually use services of a TPA and they handle accounting. A pooled account in such situation is fine.

    I had actually contemplated using a Vanguard pooled account even without a TPA, and simply using separate mutual funds for pretax v Roth, and a MMF for after tax. Since Vanguard applies unique account numbers to each fund. But Mysolo401k financial said that wasn’t kosher because of some IRS reg. I should find the language they provided. Because as I linked to earlier, someone at bogleheads did post about using Vanguard and a pooled account for their DIY plan.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #209348 Reply
    Avatar jacoavlu 
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    Joined: 03/01/2018

    From Mark Nolan at Mysolo401k.net

    “While Etrade is an option, I do not recommend using them because they have a lot of issues during the account opening process especially when we’re talking about three brokerage accounts. Therefore, I recommend either Schwab or Fidelity. “

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #209609 Reply
    Avatar CFEonline 
    Participant
    Status: Physician
    Posts: 148
    Joined: 09/05/2018

    Good to know, thanks for the info. I guess the other option is to just have the solo 401k wherever is easiest, and roll over to your Roth IRA at preferred institution. Would doing all the steps each month be quite a bit of effort, or can it all be fairly automated?

    #210021 Reply
    Avatar jacoavlu 
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    I only do once per year. Quarterly would be fine, under-estimating so as to NEVER overcontribute. Final amount determined only at tax filing time with completed schedule C.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #210056 Reply
    Liked by jfoxcpacfp
    Avatar CFEonline 
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    Status: Physician
    Posts: 148
    Joined: 09/05/2018

    What do you do with the funds throughout the year prior to contributing and converting?

    #210216 Reply
    Avatar jacoavlu 
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    treat it like any other money

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #210217 Reply
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 343
    Joined: 01/24/2016

    Signed up with discountsolo401k last Friday.  On Monday they emailed me 17 documents, but had a well organized cover letter that details the process (it is easy to see why this costs $550, it is a lot of work and detailed not a DIY job for sure).  Today I filled out application to open 3 Fidelity non prototype accounts.  Response via email support from discountsolo401k has been very quick and thorough.  I will update as the process goes along, I am sure there will be some bumps along the road getting this set up.

    #211240 Reply
    Liked by GasFIRE

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